Exam 12: Non-Recognition Transactions

Dominic and Lois sell their home for $775,000, incurring selling expenses of $40,000. They had purchased the residence in 1990 for $185,000 and made capital improvements totaling $45,000. They buy a new residence for $310,000. What is their realized gain and recognized gain on the sale? What is their basis in the new house?

Benito owns an office building he purchased five years ago at a cost of $600,000. The property is currently worth $800,000, has an adjusted basis of $300,000 and is encumbered by a $400,000 mortgage. Mitch owns an apartment complex he purchased three years ago at a cost of $600,000. The property is currently worth $750,000, has an adjusted basis of $500,000 and is encumbered by a $325,000 mortgage. Benito and Mitch would like to exchange the properties and their respective mortgages. Answer the following questions regarding the exchange. a.Any boot is to be paid in cash. Who must pay the boot and how much must be paid? b.Does Benito have to recognize any gain on the exchange? If so, indicate the amount of gain to be recognized and why it must be recognized.

Which of the following is/are correct concerning a principal residence? I.The maximum amount of gain a single taxpayer can exclude on the sale of a principal residence is $500,000. II.To qualify for a $250,000 exclusion, a single taxpayer must have owned and used the property as a principal residence for at least 2 of the previous 5 years. ​

Matthew exchanges an investment apartment building for a parcel of land. The apartment building has a fair market value of $80,000 and an adjusted basis of $95,000. The land's value is $60,000. Matthew receives $20,000 cash in the exchange. What is Matthew's recognized gain or (loss) on the exchange and his basis in the land? ? Gain (Loss) Recognized Basis A) \ -0- \ 75,000 B) \ (15,000) \ 65,000 C) \ (35,000) \ 85,000 D) \ 20,000 \ 30,000 E) \ 15,000 \ 35,000

Rosilyn trades her old business-use luxury car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use economy car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company. Bob assumes Rosilyn's loan balance. What is Rosilyn's amount realized on the transaction?

Which of the following qualify as a like-kind exchange? -Land held as an investment for land used in a business.

Jason and Mark exchange storage buildings each use in their business. In the trade, Jason receives Mark's storage building that is worth $20,000. Mark also assumes the $10,000 loan Jason had on the building. Jason purchased his storage building for $25,000 and had taken $12,000 of depreciation on the building up to the date of the exchange. Mark's adjusted basis in his building is $16,000 on the date of the exchange. a.What is Jason's realized gain on the exchange? b.What are the amount and the character of the gain Jason must recognize on the exchange? c.What is Jason's basis in the storage building acquired in the exchange?

Discuss the type of property that is qualified replacement property for involuntary conversion provisions for gain deferrals.

Which of the following qualify as a like-kind exchange? -Inventory for office supplies.

A fire destroyed Josh's Scuba Shop. The business had an adjusted basis of $500,000 and a fair market value of $600,000. Josh received $550,000 from the insurance company and used the cash to go to HawaiI.I.Josh has a realized gain of $100,000. II)Josh has a recognized gain of $50,000. ​

Norm acquired office equipment for his business at a cost of $10,000. After two years of use, Norm exchanges the equipment for different equipment with a fair market value of $7,000. MACRS depreciation on the original equipment was $4,753. What is the amount and character of the gain recognized?

Which of the following qualify as a like-kind exchange? -Office building for office equipment.

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for his investment realty with a basis of $170,000. Roscoe plans to hold the new realty for investment. What is his recognized gain?

Which of the following is/are correct regarding the sale of a principal residence? I.A single taxpayer can only use the $250,000 exclusion once every 3 years. II.Married taxpayers who both meet the ownership and use tests and file jointly can each exclude $250,000 of gain ($500,000 total) on the sale of their principal residence. ​

Charlotte's apartment building that has an adjusted basis of $200,000 is destroyed by fire. Early the following year, Charlotte receives a $425,000 insurance check and reinvests $400,000 of the proceeds in an apartment building. What is the basis in the new building?

If related parties complete a qualified like-kind exchange, how long must the parties wait before disposing of the property exchanged to insure that any realized gain on the transfer is not recognized?

Which of the tax concept(s) allow for the deferral of gains on nonrecognition transactions? I.Capital Recovery Concept. II.Ability to Pay Concept. ​

Tony and Faith sell their home for $495,000, incurring selling expenses of $25,000. They purchased the residence for $85,000 and made capital improvements totaling $20,000 during the 20 years they lived there. What is their realized gain and recognized gain on the sale? ? Realized Recognized A) $\$ 365,000 \quad \$-0-$ B) $\$ 365,000 \quad \$ 115,000$ C) $\$ 385,000 \quad \$ 135,000$ D) $\$ 385,000 \quad \$-0-$ E) $\$ 390,000 \quad \$-0-$

For related parties to qualify for a like-kind exchange, the property received must be held for six months.

Commonalties of nonrecognition transactions include that I.gains on all transactions must be recognized when the taxpayer has the wherewithal-to-pay. II.tax attributes carryover from the original asset to the replacement asset. ​